After Salesforce (CRM) Earnings, Buy These 3 Cloud Stocks Instead

Shares of cloud computing giant Salesforce.com (NYSE:CRM) were down nearly 6% in morning trading Thursday following the release of the company’s latest earnings report. Although Salesforce was able to beat on the top and bottom-line, the company’s sluggish guidance has investors looking elsewhere for cloud computing stocks.

Salesforce Results

Salesforce reported adjusted earnings of 7 cents per share, which beat the Zacks Consensus Estimate by 2 cents and marked growth of 40% year-over-year. On a GAAP basis, Salesforce’s earnings came in at 33 cents per share, compared with break-even earnings in the second quarter of fiscal 2016. The improvement was mainly driven by strong top-line growth and stringent cost management.

Salesforce also recorded revenues that beat expectations. The company posted sales of $2.037 billion in the quarter, which edged out our consensus estimate of $2.02 billion. The reported revenues also beat management’s guided range and represented growth of nearly 25% year-over-year.

Despite its strong second-quarter results, Salesforce’s third-quarter guidance disappointed investors. Salesforce projects third-quarter revenues between $2.11 billion and $2.12 billion, which is below our consensus estimate of $2.13 billion.

Salesforce also expects non-GAAP earnings per share in the range of 20 cents to 21 cents per share, and the company predicts it will lose about 4 cents to 5 cents per share on a GAAP basis.

Here’s our full coverage of Salesforce’s Q2 results: Salesforce Q2 Earnings Beat Estimates; Guides Low

Other Options

With Salesforce likely to struggle in the current quarter, investors focused on the cloud might be better suited with some of the other options in the industry. Here’s three cloud computing companies to check out now:

1. ServiceSource (NASDAQ:SREV)

ServiceSource provides a suite of cloud applications for service revenue management and has surpassed the Zacks Consensus Estimate by an average of 49% over the trailing four quarters. Although it remains a loss-making company, ServiceSource is looking at earnings growth of nearly 54% this year, and it has seen two positive estimate adjustments in the past 30 days. The stock currently has a Zacks Rank #2 (Buy) and a VGM score of “B.”

2. Avid Technology (NASDAQ:AVID)

Avid Technology, the world’s leading provider of audio/visual production software, recently moved its business over to Amazon’s (NASDAQ:AMZN) Web Services platform and increased its cloud-based collaboration features. The company has seen two positive revisions over the past 30 days, giving it a Zacks Rank #1 (Strong Buy), and its 40% return over the past four weeks has propelled its Momentum grade to “A.”

3. Intel Corp. (NASDAQ:INTC)

Intel has recently transformed itself into a cloud computing giant with the installation of its Intel Cloud Technology in its latest generation of processors. Intel’s solid P/E ratio of 14.30 has contributed to its Value grade of “A,” and its impressive estimate revision activity, including 14 positive revisions for its full-year earnings within the last 60 days, has boosted the stock to a Zacks Rank #2 (Buy).

Bottom Line

While investors may be disappointed in Salesforce right now, that doesn’t mean all cloud computing stocks should be avoided. For more coverage on how to invest in the cloud, check out our full guide: Want to Get Virtual? Here's How to Invest in the Cloud and tune into the recent episode of the Zacks Market Edge podcast that featured cloud stock picks: